Pension Scheme Valuations
Challenges and Opportunities in 2015
In mid-December long term gilts yields hit their lowest point in five years and continued falling to new lows throughout January. As a result of these dramatic falls companies and trustees with late 2014 and early 2015 pension scheme valuations could be in for a very nasty surprise when they open their initial valuation results.
During 2014 and the early part of 2015, most defined benefit pension schemes have seen their deficits deteriorate. The value of pension liabilities is driven by long term UK government gilt yields. Those gilt yields have fallen significantly over 2014 and, whilst inflation expectations have damped somewhat to offset the drop in gilt yields, the overall impact has been to increase pension liabilities.
On the asset side, returns on return seeking assets (e.g. equities) have been generally disappointing and falling far short of covering the increases in liabilities.
In this report, we consider how different pension scheme will have faired over 2014 and the actions they can take in 2015.